Iran has immense development capacity, material wealth and natural
resources, but is facing a serious economic development challenge that is
constraining this huge potential. Iran’s main working challenge is actually
economic – that is, a chronic stagflation environment in conjunct
with the economic misuse of resources (including the human and natural
resource base). This adversely affects both social capital and natural
capital. To overcome, a policy resolution is required and a change in
approach, along with focused programmes to support targeted groups. In other
words, a need to change the way we do things and the things we invest in,
and focus on balance and sustainability – rather than pushing for excess
(1).

There are many places to start such a solution process. Given the
unemployment problem, that is mixed up with poverty, and generally as
agricultural GDP growth is more effective at reducing poverty (and raising
poor people’s employment) than national GDP growth, one could start with the
agricultural and rural sector. One good and cost effective solution leading
to such outcomes would be focusing on the small farmers and poor households
in the rural sector. As the conditions are right for this in Iran (i.e.
large base of small farmers) this could lead to real cost-effective results.
It can also lead to good value chains in the processing of food, so as to
ensure high employment multipliers, and subsequent good economic growth – if
focused on, organised and supported appropriately. Leading to both inclusive
growth and sustainable development outcomes in the rural sector: prompting
sustainable wealth generation from poverty reduction.

Overcoming the Economic Challenge

Stagflation has been around for a couple of decades and has now become a big
problem, working itself through into serious unemployment and
underemployment, and hence a lower than potential consumption and demand for
ordinary people (dampening economic growth), as well as into an excessive
imbalance between asset values and income flows (that pushes investment
towards rentier type initiatives). The result of these two is a distortion
and imbalance between savings and investment, a classic economic problem
leading to non-sustainability in all dimensions including: distortions in
the benefits of investment outcomes, weak income “trickle-down” effects, and
large income inequality (2). Raising not only the probability
that interactions between new investments will not have positive outcomes
(3) but also diminishing returns on investment (and so making any
future new investment less useful, therefore reducing level of economic
growth and shortening its duration).

What are the reasons for this? Many. Including the current general approach
to economic development policy: that is, the prevailing economic
“sole-growth” policy approach and focus. This approach prompts wealth
generation and, along with large oil earnings, can easily finance large
scale approaches and high technology - for higher growth rates. Iran has
always targeted achieving 8% GDP growth per annum. This approach is very
good for society as long as wealth growth rates do not create circumstances
of wealth concentration and income is distributed well, and proceeds are
invested back into the system appropriately - so as to ensure demand is
sustained for domestic production and balance follows. However, once
excessive capital intensity and high overhead costs (of assets) relative to
income flows are generated in such a process, and if along with sustained
high levels of interest rates and rentier type costs, then the problem
starts over-shadowing the ongoing benefits and with contradictory effects.

That is, if such a policy approach is constantly undertaken, and withoutcompensating programmes, essentially the outcome forces excessive
rises in capital cost for each new employment generated. Economists would
then say that the market compensates and more labour intensive approaches
are undertaken – and there are “safety nets” to compensate. We haven’t seen
such results in Iran. In the very late 1980’s – when the economic
“sole-growth” policy approach was first implemented - one job created in
industry was circa 70 million Rials; it is now estimated at around 2500
million Rials. This is not due to inflation alone- but the form of
investment that is undertaken to achieve high growth rates. The conventional
economic “sole-growth” policy approach is at root of the significant
national problem, as it hasn’t work well to ensure the required
“trickle-down” from large scale wealth generation to ordinary people’s
pockets and domestic demand in order to ensure the balance.

Solution Opportunity

So what is the solution? As always, and generally, and if the conditions can
be made right, one has to invert any problem to find its solution. In Iran
the solution would then require focusing on the opposite: that is,
small-scale, low overhead cost and low rentier approaches and techniques.
Along with functional programmes (instead of passive “safety nets”)
that support bottom-up and community based approaches to micro and small
scale enterprise development. So as to reverse the process and enable the
money income flow to then “trickle-up”.

More formally, one needs to fully adopt an economic “inclusive-growth”
policy approach and focus. It would be the right solution for Iran’s
stagflation rooted socio-economic and development problem (4).

Such approaches and complementary focused programmes to the prevailing
sole-growth approach have been undertaken in many countries and with great
success. For example, the Indian INREGA experience; especially
Thailand’s OTOP which has been truly innovative; Brazil’s interesting
BOLSA VERDE; and South Africa’s Working for Water programme.
The multi-faceted gains of such programmes have been significant. One could
even dare say that such focused programmes can potentially raise national
GDP growth by at least 1% - as initiatives in these countries have shown.

Iran needs to implement similar programmes. The opportunity does exist. Iran
is a semi-arid country and facing growing water shortage; with a population
forecast to rise from current 80 to 100 million by 2040. So Iran’s food
production will need to increase significantly, by at least 25%. One
opportunity to start with is the small farmer: who is well placed to help in
the challenge of both food security and water production, and raising
economic growth sustainably. Of Iran’s 81 million population, about 23
million people live in rural areas (about 5.8 million households). Of these
small farmer households (SFH) make up about 15 million persons or so
in the rural sector (or 2.5 million households that have some form of
landholding). That is, 18% of Iran’s population. This should be the focus of
opportunistic programme development. The focus on SFH would be useful for
also reversing the current capital intensive growth process (and serious
development challenge it creates).

Who are the SFH? A wide range of producers may be described as small holder,
family farmers, peasant farmer, and khoshneshin. A main definition is
that in developing contexts SFH are characterised by a limited access
to resources – whether financial, material, technological, human capital,
institutional or infrastructural. They also lack capability to be
multi-functional and/or to access multiple dimensions of needs. This
focuses primarily on SFH who rely more on their own household labour, who
have limited land holdings and whom derive income primarily from the land
(or from off season labour) through their own effort.

The programme targeted SFH (in Iran) are those who generally own less than 5
hectares of land, but with more emphasis and support for those who own less
than 2 hectares; those who face food insecurity and/or are living on less
than half the minimum wage (in Iran currently circa 10,000,000 Rials/month);
have the potential to increase their own yields, and have reputation for
good practice adoption and hard work; belong to or are willing to join a
membership-based informal group or formal cooperative; who are located in
areas where other agricultural and development agencies are present in order
to ensure synergy and multiplier action.

A number of steps need be taken in order to enable SFH potential (and
overcome constraints). There is a cost involved: for programming: in
institutional changes; complementary mechanisms; sourcing budgets;
establishing partnerships; etc. First, the programming must be
multi-dimensional - all seen and programmed together: water development,
rural development, economic growth and the natural resources base need to be
linked (integrated) fully together. At the moment there are programme
disconnects – in between and at different institutional levels. Iran’s
current economic growth approach (especially the sole-growth approach in
particular), need to be linked up more in planning terms with natural
resources specifics and initial local conditions, in order to ensure
linkages between results/targets, solution paths and initial resources – so
as to help both mitigate the sustainability (stagflation) issues and to
prompt growth (5).

Second, the rural development constraints and challenges must be met fully
and squarely, in order to actually alleviate problems. There can be no
roodarvassi, as the Persians say. As indicated, Iran has many such
challenges, including rising capital costs of employment generation,
underemployment (working poor), unemployment, relative income poverty and
income inequality, lower than potential growth rates for SFH outputs and
activities (their income growth rates are possibly no higher than 2%-3% per
annum), fundamental relative economic price issues (the rentier intermediary
gain between agricultural production and retail sales is large), rural
sector institutional structures and top-down superstructure due to
centralized interventions, appropriate inter-sector integration (e.g. water
supply), as well as continued capital (intensive) investment that generate
little employment (and prompt imbalanced growth).

Third, the SFH themselves are now facing low incomes and increasingly
smaller parcels of land (due to legal, inheritance and cost-benefit issues):
a problem that needs to be resolved sustainably, fairly and efficiently, and
cannot be done by a market price (sole-growth) approach alone. The
scale and reliability at which SFH produce, and the structural issues
involved - such as access to land, to credit, to roads and transport, to
rural extension and technical assistance programmes, etc - limit SFH ability
to participate in the national market and economy in an ideal manner.

However, and although Iran’s SFH remain weak and are subject to exogenous
impacts and shock, they have, nevertheless, proven to be very resilient.

Policy Change

There is, therefore, both a potential and need for a programme based
approach: one that enables for both integration and coordination between
agricultural production interventions and social protection programmes for
the SFH in the rural sector; to enable a minimum level of income security
for SFH households (supporting long-term income generation and reducing
poverty); and, at the same time enabling SFH to produce more and earn more.
It is now generally, and internationally, believed that such a general
approach will also raise average national income (GDP) growth significantly.
Given current rural constraints to production and income, and SFH dependency
due to lack of capacities and integrated institutional support, many
country’s governments have now expanded their own programmes to even procure
raw and processed food and also handicrafts and other output from SFH as a
way to combine the national development goals of raising general income and
wealth, reducing poverty and inequality, and also expanding domestic food
production. The Thailand OTOP is a prime example and has already been
indicated (6).

Significant progress in raising food security, through more physical output,
has also occurred over the past decades in Iran. However, in order to ensure
the sustainable (self-sufficient and resilient) contribution of the
agricultural sector to the Iranian economy, the rural/agriculture sector
needs to itself become more resiliently productive. That is, also conjointly
safeguarding the natural resource base (especially in an environment of
adverse climate change) and the human resource base in the rural sector.

As part of its new strategies, policies and development plans the Iranian
Government is attempting to increasingly focus on rural and agricultural
sector support to small-scale family farmers so as to enhance their
agricultural productivity systems and improve their rural livelihoods.
Iran’s 6th Plan (2017-2021), founded on three main pillars of
resilient economy, advancing science and technology and
promoting cultural excellence and stability establishes a basis for
this. Under these, there are four priority areas including water and
environment, food safety and production of strategic commodities, enabling
the poor and disadvantaged and knowledge-based economy and society. The new
resilienteconomy approach in Iran and the push for rural
employment generation, with significant credit allocations, are
opportunities in this regard and, subject to being appropriately undertaken
and institutionalised, may enable the right programme mechanisms for
supporting SFH and their subsequent contribution to national GDP growth.

International standards (e.g. the United Nations F.A.O. global goals, and
also the S.D.G.’s) also highlight reduction of rural poverty and enabling
more inclusive and efficient agricultural and food systems at local,
national and international levels: initiatives to directly address the
challenges of SFH are on a community-based orientation and with rural
organizations and institutions strengthened; along with facilitated
collective action of the rural poor and their improved access to and control
over rural services, finance, knowledge, technologies, rural infrastructure,
markets and natural resources.

Some Figures

Although agricultural yields, output and product variety are still far from
potential, with room for improvement, Iran has experienced continued rising
agricultural sector output (7). Over the long term, sector added
value has been rising at circa 5% on average per annum. The 2016 total rural
GDP (value added) at current prices was estimated to be circa 1000 Trillion
Rials: with 70% of this from specific agricultural income (farming, herding,
fishing, etc). The farming/crop sector is the main value added contributor
in agriculture; the livestock sector comes second. Both probably make up two
thirds of total rural income. Economic productivity (value added) per the 5
million or so rural workers (including 4.2 million farmers) and 1 million or
non-agricultural, stood at circa 200 million Rials/capita. Rural income per
capita (all rural population) was of course less, at circa 44 million Rials.

Total physical output rose from 7 million tons in late 1950’s to current
circa 30 million tons or so (or a 5.4% rate of physical growth per annum):
in the same period wheat production rose from 2.7 million tons to current 12
million tons; livestock numbers from 30 million head to current 82 million
(a 2.8% rate of physical growth per annum). This agricultural output and
rural income generation is supported by natural, human and man-made
resources: 17 million hectares of potential arable (cultivable) land, 405
billion cubic meters per annum of potentially available water, 5 to 6
million people (mainly SFH and labour), 14 million hectares of forest and 28
million hectares of rangeland. Including the market, technological and
infrastructure institutions on top of it.

However, there are many constraints to sustainable and inclusive growth. A
main challenge is agricultural sector structure and its impact on SFH
productivity: the current land ownership and production trends are
increasingly marginalizing the SFH, limiting their potential agricultural
output and reducing general welfare gains of higher food output
possibilities for them. Of the circa 3.5 million farmer owner holdings in
the 2000-2010 period, about 1.2 million holdings were under 1 hectare, and
1.3 million holdings were between 1 hectare and 5 hectare. A total of 2.5
million SFH, with less than 5 hectares of land – owning about 3.5 million
hectares out of a total of about 17 million hectares of cultivable land in
Iran. This structure limits efficiency and scale of activity of SFH: not
only a potential loss and opportunity cost of possible additional 1 %
contribution to GDP growth, but also an inability of SFH families (15
million people) to easily procure consumption goods and assets (and
remaining in the poverty trap).

The above indicate the larger constraints on the SFH. However, and again,
the relatively good physical supply response of farmers over the years,
especially the large SFH base, in difficult conditions has also proven
robust and resilient in the face constraints and complexity.

New Approach and Programme

The challenges mentioned above constrain development in agricultural added
value, physical output growth and rural potential, and especially in
development of SFH with its vast potential for gain. Matters and constraints
to be foreseen and alleviated. In order to sustainably improve agricultural
output and rural income, a change in approach and technique would be
helpful. From a focus on large scale, capital intensive and hard
tech/infrastructure, to less of all three. Methods that can ensure
employment and well-being for all, and at the same time restore the
natural/human resource base through the new investment/employment actually
generated. Employment that is based more on micro and small social
enterprise, and through community-based actions that can ensure both value
added growth and ecological restoration at the same time. That is, possibly,
through green jobs and more labour intensive type integrated
natural resources management (INRM) approaches that can also provide
alternative livelihoods. Much global experience exists in this regard (the
experiences of South Africa and Brazil were indicated).

Programme based and focused interventions for developing SFH capability to
function are an effective way of ensuring this: so that they can continue
farming in a sustainable and resilient manner and continue restoring the
ecological system at the same time – in the process developing their
social capital (8). An inclusive rural development
programme type approach is one solution, and focused on SFH capability
development through strengthened institutions and support mechanisms, and
towards four outcomes:

i) support to combined socio-economic capacity development to ensure that
SFH value added growth rates double (and treble) from the current low rates,
and their poverty is halved - preferably through micro, social enterprise
and SME development;

ii) support through various mobilization, procurement and protection
mechanisms;

iv) incorporation of technology and knowledge improvement in the rural
sector for developing local, endogenous capacities of inter-sector and
integrated solutions (by the local communities).

When such a programme for achieving the four outcomes is undertaken
simultaneously, through bottom-up approaches, it will raise the functional
capability of Iran’s 2.5 million SFH; and will also be a response to the
prime joint need for both increasing Iran’s food production and keeping the
Iranian ecology safe.

As mentioned above, Iran’s policy focus and inherent (natural) growth
process increasingly moves the country into larger-scale agriculture and
agro-industry. It is, therefore, even more crucial that such a combined
productivity, support and protection policy approach for SFH is fully
established - to also compensate for the wealth concentration and to ensure
overall demand in the economy. Despite large farms (above 10 hectares)
dominating food production in Iran, and producing more than two thirds of
the cereals, livestock and fruit, the small farms of less than 10 hectares
of land also produce a third of Iran’s food, and have the advantage of
having more diverse and nutritious food production. They also cover more
poorer populations, who are less capable and more in need (e.g. the SFH) and
so ought to be supported and protected.

Such a programme based proposal requires linkages between SFH functionality,
and institutional frameworks and the market interventions required to
support SFH capability development, mobilization, incentive provision,
micro-enterprise development and institutional demand-based policies (so as
to make markets). The main pathways through which institutional demand (i.e.
procurement and guaranteed purchases – as OTOP) promotes inclusive
rural development include:

Developing coping strategies and resilience for SFH: as stable incomes
of SFH would prevent them making decisions that undermine their own
capability and welfare.

SFH households invest more: more secure livelihood allow SFH households
to purchase inputs and machinery, which leads to increased productivity;
able to buy assets (land and livestock) and move to more profitable
economic activities.

Provide safety net that secure minimum income and entry into a secure
market.

Promote local development: increased demand for food can promote local
development through spillover effects; increasing employment
opportunities and wages.

The product categories for procurement support in Iran could include: food
(raw, preserved and processed; including beverages); herbal products
(non-medicine; or raw basis for medicine); carpets and rugs; fabric and
clothing; wood handicrafts: decoration, gifts, souvenier’s. The product
characteristics must have local comparative and relative advantage – to
overcome market constraints; reflect local identity and values (culture, way
of life, knowledge, etc.); use mainly materials from the region, area or
locality – to ensure intermediate goods prompt multipliers; be socially
useful and result in no damage or loss; environmental friendly; and chosen
to represent the community identity.

In this approach, the prevailing institutional approach to rural extension
(targeting average and model farmers) also needs to change. It does not
fully support SFH development. Cooperative and
Public-Private-People-Partnership type approaches, and especially resilient
and inclusive rural development programmes through extension and education
services should replace; as would local problem solving and adaptive
research capacity at the local research institutional level. These require
improved education, extension and input provision services for SFH
(adjusting to service SFH in a more focused and programmed manner); raise
investments in soil fertility (fertilizer and seeds for subsistence crops)
and improved small-scale water control and management; focusing on rural
women’s needs; improving storage and processing for higher value added
production; improving SFH access to livestock; supporting SFH micro
enterprise; and establishment of functional cooperative systems and networks
that divide up tasks (rather than all doing the same thing).

A number of main action components would then be required to meet the above
four main outcomes, including.

Micro and social enterprise, as well as SME development support, for
SFH through establishment of business growth center (incubator)
processes and market oriented capacity development, as well as
guaranteed procurement techniques;

Ensuring institutional entities that provide technology and knowledge
support directly to SFH – for example ITC for incubation and growth
centers in localities.

Activities for these implementation components include: assessing SFH
conditions to identify constraints, opportunities and potentials for scaling
up support and improving livelihoods; review rural development policies and
national development plans, in terms of support to SFH; identify
opportunities and formulate strategies and actions; assess production and
diversification opportunities; assess alternative livelihood opportunities;
improve SFH good agricultural practices, post-harvest, marketing and
business management; develop small enterprise and social enterprises;
establish informal group organizations at local level; establish
farmer-market-finance linkages; establish farm field and business school
methodology and capacity; establish cooperatives made up of SFH;
support institutional capacities; appraise existing services and pluralistic
advisory services to identify needs, gaps and constraints.

Overall Indicators and Benefits

Given Iran’s potentially vast resource base an inclusive growth and
sustainable development policy approach in the rural sector focused on SFH,
through an integrated inclusive rural development programme, and
perhaps under the auspicies of the ResilientEconomy approach,
could then contribute to the following indicators:

Increasing employment levels and rates, from initial baseline, in the
chosen areas/sites;

Increased number of cost-effective projects that are being generated by
the local communities and SFH groups in the area/site (with positive
joint outcomes);

Improved coverage of rural population through more equitable practices,
opportunities, choices, capacity building and income distribution;

Rising standards of living for the majority and rising out of poverty
for the most vulnerable SFH – with a reduced number of households in
poverty;

Increased integrated and networked activities based on rural SFH
community organizations and group action;

Rising trend in number of rural SFH community organizations and
cooperatives established (PPP).

The benefits of this are clear: an increased demand for rural produced
non-food and food, goods and services; higher local sustainable
productivity; social capital formation; local economic growth; agricultural
growth; rural development; increases in wages and incomes; new marketing
channels; reduction in risk and income uncertainty – especially for SFH;
improved access to training, credit and technology; and lower food prices.

ii) raising SFH income growth from current low levels to 5% per annum and
more;

iii) raising income level of SHF beneficiaries and improving income
distribution in rural areas, so reducing the national Gini from current
circa above .4 down to around .3;

iv) contributing an additional 1% to national GDP growth;

v) ensuring more ecological resources restoration (by local communities and
SFH themselves) and raising forest, woodland and bush from current 14
million hectares to hopefully above 16 million hectares; and

vi) increasing water availability to agriculture from current 93 billion
cubic meters to above 100 through rainwater harvesting methods and tree
planting.

Therefore, once the SFH are targeted and supported, such an approach would
achieve the above and also could help stabilize the rural sector and prevent
migration from it to urban areas.

(Endnotes)

1. Part of a series on small farmer households potential for contributing to
national economic growth; in forthcoming editions of Iran International.
These are derived from previous work by this author including: consultancy
Working Paper on integrated inclusive rural development programming for a
United Nations Agency; previous Development Briefs for the UN in Iran while
managing poverty-environment linked programmes; some articles in previous
issues of Iran International (Full Employment …; Green GDP….;
Community-based Rainwater Harvesting and Tree Planting ….); more recently A
Complementary Sustainable Growth Programme to Conventional Sole Economic
Growth Oriented Policy in Iran (Mimeo).

2. For example, see the “structural macro-economics” works of Lance Taylor
on this for the theoretical aspects.

3. The classic example is ecological damage and human migration due to
excessive capital intensive investment in a closed waterbasin.

4. This author has previously written of the “inclusive growth” approach in
a number of articles in Iran International.

5. A Complementary Sustainable Growth Programme to Conventional Sole
Economic Growth Oriented Policy in Iran (Mimeo) by this author indicates how
to establish this linkage.

6. It is estimated that during a fifteen year implementation period the
OTOP produced nearly $100 billion of value added (GDP) alone for its SFH and
rural people – and obviously much more in monetary flows.

7. From various Statistical Centre of Iran - Yearbook.

8. In Iran the Carbon Sequestration project pilot initiative undertaken in
South Khorassan is a good example.